Ben Bernanke and the FOMC (Federal Open Market Committee
announced last week that they were going to buy up $40Billion in mortgage backed securities monthly ‘for the duration’…no expiration date tied to this announcement. The result was that mortgage backed securities shot up 104 basis points, driving mortgage rates down yet again. “Fed moves again to stimulate recovery” was the headline of the Minneapolis StarTribune this morning. The stock market loved the news and jumped over 200 points. Why? It’s a $40B a month gamble that jump starting the housing market will ignite our stagnant economy and that will make it possible to pay it all back.
The real impact on rates today was negligible. We perhaps wrangled a .125% improvement.
Why? A number of reasons.
· There is no capacity to process the mortgage business that exists today on the part of large servicers because a huge percentage of the players in the industry are now out of business. Why swamp your boat if it’s already sinking.
· It takes a very long time to hire and train qualified new people since the standard is perfection and the cost of imperfection is unbearable. Therefore, the capacity issues won’t improve anytime soon.
· T The large servicers have been battered by heavy lawsuits, repurchase requests, and aren’t going to pass on an opportunity to recoup some of what they’ve lost in an environment where they are fairly confident another salvo is on the way.
We have been working at maximum capacity since last October. I think just about anyone who has ears and eyes knows that rates are at historic lows and if they are in a position to buy or refinance, they will. If that hasn’t moved the needle on the unemployment meter much more than a notch, how will QE3 accomplish that?
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